Eq: Total Market
The President and his team are working furiously on plans for how to open the $22 tn US economy after its unprecedented lockdown. “We’re looking at the concept where we open sections of the country and we’re also looking at the concept where you open up everything”, says Trump. In particular, the White House is looking to open the economy entirely within 30 days, or possibly 60 days, with different schedules being considered. The new strategy is to open the economy based on much more widespread and rapid testing. This will allow workers to be verified as having (or not) the virus and sent back to work.
FINSUM: Just as the coronavirus is a nearly unprecedented occurrence, so is the reopening of the world’s largest economy. It is going to take exceptionally good planning to balance the competing priorities of public health and economic restoration.
Right now there is a big problem in earnings forecasts. UBS points out that many Wall Street analysts have been very slow to update their earnings estimates in the growing coronavirus lockdown. As such, the current spread between estimates and what actual earnings are likely to be is very wide. This often happens in crises, as analysts await more info and data before updating estimates, but it also generally means there is a much greater chance for volatility as earnings releases approach.
FINSUM: We expect that as Q1 earnings reporting approaches in the next few weeks, there will be some big attention-grabbing downward revisions, which could bring on additional bouts of downside-oriented volatility.
Ever since the big stock rally of a couple of weeks ago, the predominant mood of Wall Street analysts has been decidedly bearish. Most big research teams have said markets have further to fall before they hit bottom. However, Morgan Stanley has just come out with a contrarian opinion. Commenting that “the worst is behind us”, the bank says it is time for investors to jump back into stocks in a big way. Summarizing their view, the bank said “With the forced liquidation of assets in the past month largely behind us, unprecedented and unbridled monetary and fiscal intervention led by the U.S. and the most attractive valuation we have seen since 2011, we stick to our recent view that the worst is behind us for this cyclical bear market that began two years ago, not last month”.
FINSUM: The worst of the health crisis is still ahead of us, but it could be the case that the worst of the asset selloff is over. Our lingering worry about this is that a mortgage crisis could be brewing as a result of the stop in the flow of money, so we are worried about another sharp downturn in coming months.
Yes, you read that right, Bank of America is forecasting a 35%+ GDP fall for the YEAR, not just Q2. The bank thinks the Coronavirus downturn is so bad that the US economy will shrink 7% in Q1, 30% in Q2, and 1% in Q3, a cumulative 35.55% for the year. The downturn would be the worst to ever strike the US.
FINSUM: This is by far the bleakest projection we have seen. Goldman, for instance, sees 19% growth in Q3. So if the economy shrinks 35% this year, what is fair market value for the S&P 500?
Goldman Sachs, who has been a leader in putting out new research n the economic effects of the current lockdown, has issued new guidance on this week’s pending jobless claims. The bank thinks jobless claims will increase to a whopping 6m this week. If that happens, it would mean this week’s figure would exceed the record that stood until last week by a whopping 9x. The coming release will cover the week from March 22-28th. “Jobless claims will be the timeliest hard data point for assessing the depth of the recession and catching the start of the recovery”, says Goldman.
FINSUM: The period the release covers is not even likely to be the worst. There is probably still a few weeks before the full scale of the layoffs becomes apparent and the numbers peak.
Citibank is pitching a convincing and optimistic view of the economy, and it is a refreshing take in an otherwise bleak landscape. The bank says the big influx of tests that will become available may allow the economy to open much sooner than planned. Their argument is that the growth in tests will allow 60% of working-age US individuals to be tested by the end of April, and 95% by the end of May. As workers are tested, they can head back to work, quickly re-opening the economy. Accordingly, by the end of this month 90 million Americans may be back at work. “While potential therapeutic strategies for COVID-19 seize headlines, we believe diagnostics rather than therapeutics are far better positioned to materially change the economic and even medical outlook for the current COVID-19 pandemic”, says Citi.
FINSUM: Honestly, this sounds like more of a plan than a forecast, but it is a very good one, and does lend some useful optimism.